Aquila secures innovative financing for NZ solar platform

Aquila Clean Energy has reached financial close on its first set of solar projects in New Zealand in a move that will provide a boost to the underdeveloped sector.

Four solar PV projects with a combined capacity of 180MW have secured non-recourse debt financing from the bank Westpac in what ACE head of Australia and New Zealand Dennis Freedman said is the first deal of its kind for an international investor in New Zealand.

“It’s exciting for the New Zealand market because it means that debt providers like Westpac are keen to support renewables in the country.

“They’re being quite innovative compared to their bigger neighbours across the ditch, and that’s something Kiwis should be proud of…

“If this type of package turned up in Australia, it’d be front page of the local paper.”

While the news also failed to make the front page of New Zealand newspapers, that might be because solar is still a relatively new industry in the country.

As of 2022, solar systems contributed 240MW of capacity – less than 1 percent of total electricity consumption, according to the Electricity Authority.

The first utility-scale project to supply the national grid, Auckland-based developer Lodestone’s 33MW Kohirā solar farm, only finished construction last year.

It means ACE is joining the solar party at the very start, and its 1,400MW pipeline across 11 projects will represent a significant share of New Zealand’s total solar generation.

The 20.8MW Pukenui solar farm in the Far North District will be the first to begin construction, with three more slated for the North Island under a partnership with renewable energy developer Far North Solar Farm.

ACE’s next tranche of projects will also include some in the South Island, which Freedman said will help to diversify its portfolio and spread the risk.

“Doing things on both islands also helps us with finding workforce, because finding people to build these things can be a challenge.”

Freedman said ACE aims to “leave a legacy” in New Zealand by creating jobs and helping to establish the grid-scale solar industry.

The dry year problem

The opportunity in New Zealand is small in comparison to Australia: New Zealand’s peak grid demand is less than that of New South Wales alone, while the penetration of renewables in New Zealand’s grid (87 percent) is much higher than that in Australia (32 percent, based on 2022 figures).

Still, New Zealand’s reliance on hydropower, which supplies about 57 percent of its electricity (compared to 6 percent in Australia), leaves it susceptible to the so-called ‘dry year problem’ – generating enough clean energy when water flows are insufficient for hydroelectric generation.

Freedman said solar energy can complement hydroelectricity as the performance of the two sources is generally uncorrelated.

“If you’re a hydro owner, you have a fuel source which is your water, and you’d prefer to hold onto those water droplets rather than just spill them and turn them into power when the prices are low.

“What the solar allows the hydro owners to do is not spill the water when the sun’s shining.

“It makes those water molecules much more valuable because they can be turned into electricity when the prices are much higher.”

Freedman said establishing a debt package on a non-recourse, fully merchant basis removes some of the stress around reaching financial close typically associated with renewable projects.

“It’s very difficult to get good debt packages into renewable projects unless you’ve got a PPA in place because the banks like to see that there’s a fixed revenue stream at least in the early part of the project to de-risk itself.

“Because our debt’s in place, we don’t have that pressure, so we can start building away and we come up with a business case around that.”

Freedman said ACE will be open to opportunities for PPAs should they arise in the future but said while the New Zealand market is still immature, it lacks a pool of ready buyers.

“If we were to wait until we could work with the market to get a PPA, that timing is uncertain.

“The world doesn’t have that time to wait if we’re going to keep warming up the planet.”

ACE’s move into New Zealand comes as its Hamburg-headquartered parent company Aquila Capital increases its presence in Asia-Pacific following the expansion of its Singapore office in 2020 and launch of South Korean renewable platform Aquila Development Partners in 2022.

ACE declined to disclose financial details of its debt package with Westpac.